In October, UK households saw a decrease in inflation to 3.6%, providing a positive impact on the cost of living. This drop in the Consumer Prices Index (CPI) inflation from 3.8% in the previous months marks the first decline since March, bringing inflation back to its lowest point since June. Despite not meeting the anticipated drop to 3.5%, inflation remains above the Bank of England’s 2% target.
The Office for National Statistics (ONS) reported that energy bills were the primary factor driving down inflation in October, as gas and electricity costs increased less compared to the previous year. Energy bills rose by 2% in October 2025 following an Ofgem price cap adjustment, significantly lower than the 9.6% increase seen in October 2024. Additionally, a decrease in hotel prices contributed to the reduction in inflation.
However, the rise in food prices, rebounding from a decline in September, partially offset the overall decrease. Food inflation climbed from 4.5% to 4.9% in October. This update comes just ahead of the Autumn Budget, where Chancellor Rachel Reeves aims to create room for interest rate cuts by lowering inflation.
Grant Fitzner, ONS Chief Economist, highlighted that the easing of inflation in October was mainly driven by lower energy prices and falling hotel costs. While raw material costs for businesses continued to rise, factory gate prices also saw an increase.
Chancellor Rachel Reeves expressed satisfaction with the decline in inflation, emphasizing the ongoing efforts to reduce prices for households and businesses. Reeves plans to address public priorities, including cutting NHS waiting lists, reducing national debt, and easing the cost of living in the upcoming Budget.
Inflation serves as a gauge for price escalations, indicating how a product that cost £1 in the previous year would now cost £1.04 with a 4% inflation rate. Lower inflation does not imply a halt in price increases but rather a slower escalation rate.
The ONS calculates inflation based on a varied “basket of goods” and services to mirror household spending patterns. The headline inflation figure represents an average, meaning individual prices of specific goods may deviate from this main figure.
The Bank of England targets a 2% inflation rate, adjusting interest rates to manage inflation levels. While higher interest rates can curb inflation by reducing spending and demand, they can strain households through increased borrowing costs. The base rate, which peaked at 5.25% in August 2023, has since been lowered to the current 4% level.
Inflation surged in 2021, peaking at 11.1% in October 2022, primarily driven by elevated energy and food costs. The post-Covid rise in energy demand, compounded by the Ukraine conflict, heightened energy and food prices due to supply chain disruptions.
Following a low of 1.7% in September 2024, inflation started to rise again in October, indicating a fluctuating trend in recent years.